0000950134-95-001973.txt : 19950815
0000950134-95-001973.hdr.sgml : 19950815
ACCESSION NUMBER: 0000950134-95-001973
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 3
CONFORMED PERIOD OF REPORT: 19950630
FILED AS OF DATE: 19950814
SROS: NYSE
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: MCDERMOTT INTERNATIONAL INC
CENTRAL INDEX KEY: 0000708819
STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED PLATE WORK (BOILER SHOPS) [3443]
IRS NUMBER: 720593134
STATE OF INCORPORATION: R1
FISCAL YEAR END: 0331
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-08430
FILM NUMBER: 95562876
BUSINESS ADDRESS:
STREET 1: 1010 COMMON ST
CITY: NEW ORLEANS
STATE: LA
ZIP: 70112
BUSINESS PHONE: 5045875400
MAIL ADDRESS:
STREET 1: P O BOX 61961
CITY: NEW ORLEANS
STATE: LA
ZIP: 70161
10-Q
1
FORM 10-Q
1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT 1934
For the transition period from ______________to______________
Commission File No. 1-8430
McDERMOTT INTERNATIONAL, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
REPUBLIC OF PANAMA 72-0593134
--------------------------------------------------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
1450 Poydras Street, New Orleans, Louisiana 70112-6050
--------------------------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, Including Area Code (504) 587-5400
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of Common Stock, par value $1 per share, outstanding as of
July 30, 1995 was 54,269,508.
2
M c D E R M O T T I N T E R N A T I O N A L, I N C.
I N D E X - F O R M 1 0 - Q
PAGE
----
PART I - FINANCIAL INFORMATION
------------------------------
Item 1 - Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheet
June 30, 1995 and March 31, 1995 4
Condensed Consolidated Statement of Income
Three Months Ended June 30, 1995 and 1994 6
Condensed Consolidated Statement of Cash Flows
Three Months Ended June 30, 1995 and 1994 8
Notes to Condensed Consolidated Financial Statements 10
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
PART II - OTHER INFORMATION
---------------------------
Item 6 - Exhibits and Reports on Form 8-K 23
SIGNATURES 24
Exhibit 11 - Calculation of Earnings (Loss) Per
Common and Common Equivalent Share 25
2
3
PART I
McDERMOTT INTERNATIONAL, INC.
FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
3
4
McDERMOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1995
ASSETS
6/30/95 3/31/95
------- -------
(Unaudited)
(In thousands)
Current Assets:
Cash and cash equivalents $ 106,996 $ 85,909
Short-term investments 145,314 132,691
Accounts receivable - trade 514,386 475,861
Accounts receivable - unconsolidated affiliates 94,320 75,709
Accounts receivable - other 98,526 104,155
Insurance recoverable - current 134,160 111,188
Contracts in progress 333,429 279,016
Inventories 67,941 64,044
Deferred income taxes 69,048 76,863
Other current assets 43,206 45,131
----------------------------------------------------------------------------------------------------------------
Total Current Assets 1,607,326 1,450,567
----------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment, at Cost: 2,256,761 2,237,018
Less accumulated depreciation 1,355,533 1,337,341
----------------------------------------------------------------------------------------------------------------
Net Property, Plant and Equipment 901,228 899,677
----------------------------------------------------------------------------------------------------------------
Investments:
Government obligations 176,444 383,023
Other investments 148,452 199,379
----------------------------------------------------------------------------------------------------------------
Total Investments 324,896 582,402
----------------------------------------------------------------------------------------------------------------
Insurance Recoverable 694,623 750,219
----------------------------------------------------------------------------------------------------------------
Excess of Cost Over Fair Value of Net Assets
of Purchased Businesses Less Accumulated
Amortization of $104,338,000 at June 30, 1995
and $96,405,000 at March 31, 1995 371,423 381,491
----------------------------------------------------------------------------------------------------------------
Prepaid Pension Costs 294,875 277,814
----------------------------------------------------------------------------------------------------------------
Other Assets 429,859 409,500
----------------------------------------------------------------------------------------------------------------
TOTAL $ 4,624,230 $ 4,751,670
================================================================================================================
See accompanying notes to condensed consolidated financial statements.
4
5
LIABILITIES AND STOCKHOLDERS' EQUITY
6/30/95 3/31/95
------- -------
(Unaudited)
(In thousands)
Current Liabilities:
Notes payable and current
maturities of long-term debt $ 339,768 $ 407,586
Accounts payable 286,808 286,219
Environmental and products liabilities - current 156,551 133,280
Accrued employee benefits 97,361 104,883
Accrued liabilities - other 332,835 326,688
Advance billings on contracts 164,184 180,018
U.S. and foreign income taxes 51,002 52,683
----------------------------------------------------------------------------------------------------------------
Total Current Liabilities 1,428,509 1,491,357
----------------------------------------------------------------------------------------------------------------
Long-Term Debt 567,717 579,101
----------------------------------------------------------------------------------------------------------------
Accumulated Postretirement Benefit Obligation 395,606 393,744
----------------------------------------------------------------------------------------------------------------
Environmental and Products Liabilities 849,451 913,939
----------------------------------------------------------------------------------------------------------------
Other Liabilities 318,293 310,989
----------------------------------------------------------------------------------------------------------------
Contingencies
----------------------------------------------------------------------------------------------------------------
Minority Interest:
Subsidiary's preferred stocks 179,251 179,251
Other minority interest 166,317 172,710
----------------------------------------------------------------------------------------------------------------
Total Minority Interest 345,568 351,961
----------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Preferred stock, authorized 25,000,000 shares;
outstanding 2,875,000 Series C $2.875 cumulative
convertible, par value $1.00 per share,
(liquidation preference $143,750,000) 2,875 2,875
Common stock, par value $1.00 per share,
authorized 150,000,000 shares; outstanding
54,169,508 at June 30, 1995 and
53,959,597 at March 31, 1995 54,170 53,960
Capital in excess of par value 937,115 936,134
Deficit (255,823) (249,061)
Minimum pension liability (391) (391)
Net unrealized loss on investments (855) (8,050)
Currency translation adjustments (18,005) (24,888)
----------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 719,086 710,579
----------------------------------------------------------------------------------------------------------------
TOTAL $ 4,624,230 $ 4,751,670
================================================================================================================
5
6
McDERMOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
JUNE 30, 1995
THREE MONTHS ENDED
6/30/95 6/30/94
-------- -------
(Unaudited)
(In thousands)
Revenues $ 816,474 $ 759,808
----------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Cost of operations (excluding depreciation
and amortization) 710,648 645,700
Depreciation and amortization 34,112 36,918
Selling, general and
administrative expenses 66,851 67,661
----------------------------------------------------------------------------------------------------------------
811,611 750,279
----------------------------------------------------------------------------------------------------------------
Operating Income before Equity in Income of Investees 4,863 9,529
Equity in Income of Investees 33,179 6,302
----------------------------------------------------------------------------------------------------------------
Operating Income 38,042 15,831
----------------------------------------------------------------------------------------------------------------
Other Income (Expense):
Interest income 11,259 10,398
Interest expense (21,538) (12,839)
Minority interest (3,630) (3,857)
Other-net (2,424) (4,019)
----------------------------------------------------------------------------------------------------------------
(16,333) (10,317)
----------------------------------------------------------------------------------------------------------------
Income before Provision for Income
Taxes and Cumulative Effect
of Accounting Change 21,709 5,514
Provision for Income Taxes 12,877 2,396
----------------------------------------------------------------------------------------------------------------
Income before Cumulative Effect
of Accounting Change 8,832 3,118
Cumulative Effect of Accounting Change - (1,765)
----------------------------------------------------------------------------------------------------------------
Net Income $ 8,832 $ 1,353
================================================================================================================
6
7
Continued
THREE MONTHS ENDED
6/30/95 6/30/94
------- -------
(Unaudited)
(In thousands,except shares
and per share amounts)
NET INCOME (LOSS) APPLICABLE TO
COMMON STOCK (AFTER PREFERRED
STOCK DIVIDENDS) $ 6,766 $ (713)
================================================================================================================
EARNINGS (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE (PRIMARY AND FULLY DILUTED):
Income before cumulative
effect of accounting change $ 0.12 $ 0.02
Accounting change - (0.03)
------------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.12 $ (0.01)
============================================================================================================
Weighted average number of common and
common equivalent shares 54,413,106 53,623,686
CASH DIVIDENDS:
Per common share $ 0.25 $ 0.25
Per preferred share $ 0.71875 $ 0.71875
================================================================================================================
See accompanying notes to condensed consolidated financial statements.
7
8
McDERMOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
JUNE 30, 1995
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
THREE MONTHS ENDED
6/30/95 6/30/94
------- -------
(Unaudited)
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 8,832 $ 1,353
----------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 34,112 36,918
Equity in income of investees,
less dividends 13,215 16,377
Provision for (benefit from) deferred taxes (15,521) 18,358
Other 1,210 4,162
Changes in assets and liabilities:
Accounts receivable (49,070) (3,980)
Net contracts in progress and advance billings (69,383) (36,668)
Accounts payable 372 (56,743)
Accrued liabilities 5,703 (41,206)
Income taxes (3,414) (30,530)
Other, net (18,527) (9,035)
Proceeds from insurance for products liabilities claims 27,100 28,094
Payments of products liabilities claims (36,604) (31,450)
----------------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (101,975) (104,350)
----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of minority interest in Delta Catalytic Corporation (6,527) -
Purchases of property, plant and equipment (25,278) (15,583)
Purchases of short and long-term investments (274,667) (213,483)
Sales of short and long-term investments 527,829 214,807
Other (3,342) 705
----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 218,015 (13,554)
----------------------------------------------------------------------------------------------------------------
8
9
CONTINUED
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
THREE MONTHS ENDED
6/30/95 6/30/94
------- -------
(Unaudited)
(In thousands)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term borrowing $ 81,108 $ 79,028
Payment of long-term debt (160,770) (8,443)
Issuance of common stock 857 26
Dividends paid (15,285) (15,419)
Repurchase of subsidiary's preferred stock - (16,753)
Other (139) (373)
----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (94,229) 38,066
----------------------------------------------------------------------------------------------------------------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH (724) 363
----------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 21,087 (79,475)
----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 85,909 133,809
----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 106,996 $ 54,334
================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $ 23,918 $ 21,225
Income taxes (net of refunds) $ 22,986 $ 14,578
================================================================================================================
See accompanying notes to condensed consolidated financial statements.
9
10
McDERMOTT INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements are
presented in U. S. Dollars and have been prepared in accordance with accounting
principles generally accepted in the United States for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included. Such adjustments are of a normal,
recurring nature except for a gain resulting from the sale of two power
purchase contracts ($17,908,000, net of tax of $12,704,000, or $0.33 per share)
during the three months ended June 30, 1995; and accelerated depreciation on
certain marine equipment ($4,314,000, or $0.08 per share), a reduction in
accrued interest expense ($3,705,000, net of tax of $1,995,000, or $0.07 per
share) due to settlement of an outstanding tax issue with the IRS, and the
cumulative effect of the accounting change for the adoption of Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" during the three months ended June 30, 1994.
Operating results for the three months ended June 30, 1995 are not necessarily
indicative of the results that may be expected for the year ended March 31,
1996. For further information, refer to the consolidated financial statements
and footnotes thereto included in McDermott International, Inc.'s annual report
on Form 10-K for the year ended March 31, 1995.
Unless the context otherwise requires, hereinafter "International" will be used
to mean McDermott International, Inc., a Panamanian Corporation; "JRM" will be
used to mean J. Ray McDermott, S.A., a Panamanian corporation, which is a
majority-owned subsidiary of International, and its consolidated subsidiaries;
and the "Delaware Company" will be used to mean McDermott Incorporated, a
Delaware corporation which is a subsidiary of International, and its
consolidated subsidiaries (including Babcock & Wilcox Investment
10
11
Company and its principal subsidiary, The Babcock & Wilcox Company); and
"McDermott International" will be used to mean the consolidated enterprise.
NOTE 2 - PRODUCTS LIABILITY
At June 30, 1995, the estimated liability for pending and future non-employee
products liability asbestos claims was $959,344,000 (of which less than
$190,000,000 had been asserted) and estimated insurance recoveries were
$828,783,000. Estimated liabilities for pending and future non-employee
products liability asbestos claims are derived from McDermott International's
claims history and constitute management's best estimate of such future costs.
Estimated insurance recoveries are based upon analysis of insurers providing
coverage of the estimated liabilities. Inherent in the estimate of such
liabilities and recoveries are expected trends in claim severity and frequency
and other factors, including recoverability from insurers, which may very
significantly as claims are filed and settled. Accordingly, the ultimate loss
may differ materially from amounts provided in the consolidated financial
statements.
NOTE 3 - INVENTORIES
Consolidated inventories at June 30, 1995 and March 31, 1995 are summarized
below:
June 30, March 31,
1995 1995
---- ----
(In thousands)
Raw Materials and Supplies $ 40,131 $ 38,570
Work in Progress 18,543 15,341
Finished Goods 9,267 10,133
----------------------------------------------------------------------------------------------------------------
$ 67,941 $ 64,044
================================================================================================================
11
12
NOTE 4 - SUMMARIZED INCOME STATEMENT INFORMATION OF AFFILIATES
The combined financial results of McDermott International's equity investments
in HeereMac and McDermott ETPM-West, Inc., are summarized below. These
ventures were significant as defined by applicable SEC regulations in fiscal
year 1995. The following summarizes the combined income statements:
THREE THREE
MONTHS ENDED MONTHS ENDED
6/30/95 6/30/94
------- -------
(In thousands)
Revenues $ 191,919 $ 237,285
----------------------------------------------------------------------------------------------------------------
Operating Income $ 5,612 $ 856
----------------------------------------------------------------------------------------------------------------
Income before Income Taxes $ 10,211 $ 5,588
Provision for (Benefit from) Income Taxes 1,673 (550)
----------------------------------------------------------------------------------------------------------------
Net Income $ 8,538 $ 6,138
================================================================================================================
Equity in Net Income $ 3,982 $ 3,051
================================================================================================================
NOTE 5 - SALE OF POWER PURCHASE CONTRACTS
During the June 1995 quarter, McDermott International, Inc.'s
Babcock-Ultrapower West Enfield and Babcock-Ultrapower Jonesboro 50% owned
partnerships sold power purchase contracts back to the local utility which had
previously entered into agreements with the partnerships to purchase power, and
recognized a gain of $61,324,000. McDermott International's equity in earnings
of these partnerships was $32,840,000 for the three months ended June 30, 1995.
NOTE 6 - ACQUISITION OF OFFSHORE PIPELINES, INC.
On January 31, 1995, McDermott International contributed substantially all of
its marine construction services business to JRM and JRM acquired Offshore
Pipelines, Inc. The acquisition was accounted for by the purchase method and,
accordingly, the purchase price was allocated to the underlying assets and
liabilities based upon preliminary fair values at the date of acquisition. The
preliminary purchase price allocation is subject to change when additional
information concerning asset and liability valuations is obtained.
12
13
NOTE 7 - OTHER AGREEMENTS
During June 1995, McDermott International and Delta Catalytic Corporation
("DCC") of Calgary, Alberta, concluded an agreement which accelerated from
fiscal year 1997 to June 1995, McDermott International's purchase of the
remaining portion of DCC. During June 1993, McDermott International had
acquired a controlling interest in DCC in the first step of the two step
transaction. DCC provides engineering, procurement, construction and
maintenance services to industries worldwide; including oil, gas, marine
construction and hydrocarbon processing. Also during the June 1995 quarter,
substantially all of the agreements required to restructure the JRM and ETPM
joint venture were executed, but are still subject to any necessary government
approvals or authorizations. The agreements call for the expansion of the
joint venture into the Far East, the Mediterranean Sea, and all of Africa and
for ETPM S.A. to take a minority interest in a new JRM subsea company. Neither
of these transactions are significant as defined by applicable SEC regulations.
13
14
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1995 VS. THREE MONTHS ENDED
JUNE 30, 1994
Beginning with the June 1995 quarter, management's discussion of revenues and
operating income is presented on a business unit basis as follows: J. Ray
McDermott, S.A. ("JRM") business unit (includes the results of operations of
the marine construction services business); B&W Operations business unit
(includes the operations of the Babcock & Wilcox Power Generation and
Government Groups); and Engineering, Construction and Industrial Operations
business unit (includes the Engineering and Construction Group, and
Shipbuilding and Industrial Group). Other business unit revenues includes
eliminations between business units; and Other business unit loss includes
certain expenses, primarily employee benefit and insurance programs, and
marketing and legal costs, that are not allocated to the business units. For
the three months ended June 30, 1994, the results of businesses disposed of
during fiscal year 1995 are included in Other revenues and business unit loss.
Prior year information has been reclassified to conform with the June 1995
quarter presentation.
THREE MONTHS ENDED
6/30/95 6/30/94
------- -------
(In thousands)
REVENUES
J. Ray McDermott, S.A. $ 311,803 $ 279,046
B&W Operations 317,638 290,625
Engineering, Construction and
Industrial Operations 205,521 213,245
Other (including Transfer Eliminations) (18,488) (23,108)
----------------------------------------------------------------------------------------------------------------
TOTAL REVENUES $ 816,474 $ 759,808
================================================================================================================
OPERATING INCOME
Business Unit Income (Loss):
J. Ray McDermott, S.A. $ 14,642 $ 16,827
B&W Operations 5,271 10,303
Engineering, Construction and
Industrial Operations (4,582) (5,339)
Other (3,135) (4,535)
----------------------------------------------------------------------------------------------------------------
TOTAL BUSINESS UNIT INCOME 12,196 17,256
----------------------------------------------------------------------------------------------------------------
14
15
OPERATING INCOME (CONTINUED)
THREE MONTHS ENDED
6/30/95 6/30/94
------- -------
(In thousands)
Equity in Income (Loss) of Investees:
J. Ray McDermott, S.A. (898) 2,967
B&W Operations 34,083 2,820
Engineering, Construction and
Industrial Operations (6) 515
----------------------------------------------------------------------------------------------------------------
TOTAL EQUITY IN INCOME OF INVESTEES 33,179 6,302
----------------------------------------------------------------------------------------------------------------
Corporate G&A Expense (7,333) (7,727)
----------------------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME $ 38,042 $ 15,831
================================================================================================================
JRM's revenues increased $32,757,000 to $311,803,000 primarily due to higher
volume on procured materials in the North Sea related to the B.P. Exploration
Foinaven Development program west of the Shetlands in the North Atlantic, and
higher revenues in fabrication operations in North America. These increases
were partially offset by lower volume in the Far East.
B&W Operations' revenues increased $27,013,000 to $317,638,000 primarily due to
higher revenues from the Power Generation Group's contracts on fossil fuel
steam systems for foreign customers and replacement nuclear steam generators
for domestic customers at its Cambridge, Ontario location, and on plant
enhancement projects. These increases were partially offset by lower revenues
from domestic fabrication of fossil fuel steam and environmental control
systems. In addition, the Government Group's defense and space-related
products (other than nuclear fuel assemblies and reactor components) had higher
revenues that were offset by lower revenues from nuclear fuel assemblies and
reactor components for the U. S. Government.
Engineering, Construction and Industrial Operations' revenues decreased
$7,724,000 to $205,521,000 primarily due to lower revenues from the
Shipbuilding and Industrial Group's shipyard activities and lower revenues
in the U. S. from the Engineering and Construction Group's activities relating
to the construction, repair and alteration of utility and industrial
15
16
boilers. There were also lower revenues from engineering services in Canada.
These decreases were partially offset by higher revenues from the Group's
maintenance and construction activities in Canada.
JRM's business unit income decreased $2,185,000 to $14,642,000 primarily due to
lower volume in the Far East, lower margins in the Middle East and higher
operating expenses in North America. These decreases were partially offset by
higher volume and margins on North American fabrication activities and the
accelerated depreciation of $4,314,000 on certain marine equipment in the Far
East in the prior period.
B&W Operations' business unit income decreased $5,032,000 to $5,271,000
primarily due to lower volume and margins from its Power Generation Group's
domestic fabrication of fossil fuel steam and environmental control systems.
This decrease was partially offset by higher volume and margins from
replacement nuclear steam generators. In addition, there were lower volume
and margins from the Government Group's nuclear fuel assemblies and reactor
components for the U. S. Government.
Engineering, Construction and Industrial Operations' business unit loss
decreased $757,000 to a loss of $4,582,000 primarily due to improved margins
from the Engineering and Construction Group's engineering services in Canada.
In addition, there were improved margins from the Shipbuilding and Industrial
Group's shipyard operations. These increases were partially offset by lower
volume and margins in the U. S. relating to the construction, repair and
alteration of utility and industrial boilers.
Other business unit loss decreased $1,400,000 to $3,135,000 due to the
inclusion of losses of businesses in the prior year that were subsequently
disposed of during fiscal year 1995.
JRM's equity in income (loss) of investees decreased $3,865,000 to a loss of
$898,000 from income of $2,967,000. This decrease was primarily due to lower
operating volume and margins of the McDermott-ETPM West joint venture and
foreign currency transaction losses of the CMM Mexican joint venture, partially
offset by improved operating results in the HeereMac joint venture.
16
17
B&W Operations' equity in income of investees increased $31,263,000 to
$34,083,000, primarily due to the sale of power purchase contracts back to a
local utility (See Note 5 to the condensed
consolidated financial statements).
Interest income increased $861,000 to $11,259,000, primarily due to higher
interest rates on investments in government obligations and other investments.
Interest expense increased $8,699,000 to $21,538,000, primarily due to a
reduction in accrued interest on proposed tax deficiencies of $5,700,000 that
was recorded in the prior year and changes in debt obligations and interest
rates prevailing thereon.
Other-net expense decreased $1,595,000 to $2,424,000. This decrease was
primarily due to foreign currency transaction gains in the current period and
losses on the sale of investments in the prior period. This decrease was
partially offset by higher bank fees and discounts on the sale of certain
accounts receivable.
The provision for income taxes increased $10,481,000 to $12,877,000, while
income before provision for income taxes and cumulative effect of accounting
change increased $16,195,000 to $21,709,000. The increase in the provision for
income taxes is due primarily to a increase in earnings. In addition,
McDermott International operates in many different tax jurisdictions. Within
these jurisdictions, tax provisions vary because of nominal rates, allowability
of deductions, credits and other benefits, and tax basis (for example,
revenues versus income). These variances, along with variances in the mix of
income within jurisdictions, are responsible for shifts in the effective tax
rate. During this period, these factors increased the effective tax rate
from 43% to 59%.
Net income increased $7,479,000 to $8,832,000 reflecting the cumulative effect
of the adoption of Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits," of $1,765,000 in the prior
year, in addition to the other items mentioned above.
17
18
Backlog
6/30/95 3/31/95
------- -------
(In thousands)
Business Unit Backlog:
J. Ray McDermott, S.A. $ 863,011 $ 1,002,968
B&W Operations 1,974,185 1,952,580
Engineering, Construction
and Industrial Operations 520,047 623,719
Other (including Transfer Eliminations) (103,662) (105,435)
----------------------------------------------------------------------------------------------------------------
TOTAL BACKLOG $ 3,253,581 $ 3,473,832
================================================================================================================
JRM's backlog at June 30, 1995 and March 31, 1995 was $863,011,000 and
$1,002,968,000, respectively. Not included in JRM's backlog at June 30, 1995
and March 31, 1995 was backlog relating to contracts to be performed by
unconsolidated joint ventures of approximately $1,060,000,000 and $922,000,000,
respectively. JRM's markets are expected to be at a low level during fiscal
1996. The overcapacity of marine equipment worldwide will continue to result
in a competitive environment and put pressure on profit margins.
B&W Operations' backlog at June 30, 1995 was $1,974,185,000 compared to
$1,952,580,000 at March 31, 1995. B&W Operations' foreign markets for
industrial and utility boilers are expected to remain strong as well as the U.
S. market for replacement nuclear steam generators. Domestic utility markets
remain weak. At June 30, 1995 this business unit's backlog with the U. S.
Government was $758,909,000 (of which $90,994,000 had not been funded). U. S.
Government budget reductions have negatively affected this business unit's
government operations.
Engineering, Construction and Industrial Operations' backlog at June 30, 1995
was $520,047,000 compared to $623,719,000 at March 31, 1995. The current
competitive economic environment in the U. S. has negatively affected demand
for its construction activities.
18
19
Liquidity and Capital Resources
During the three months ended June 30, 1995, McDermott International's cash and
cash equivalents increased $21,087,000 to $106,996,000 and total debt decreased
$79,202,000 to $907,485,000. During this period, McDermott International used
cash of $101,975,000 in operating activities; $15,285,000 for dividends on
International's common and preferred stock; $160,770,000 for repayment of
long-term debt of which $130,000,000 was provided by the sale of investments
(additional investments of approximately $123,000,000 were sold to repay
short-term debt of $99,024,000 and to meet operating requirements); and
$25,278,000 for additions to property, plant and equipment. Also, during July
1995, the Delaware Company sold approximately $76,000,000 of its short-term
investments to repay outstanding short-term debt.
Increases in accounts receivable are primarily due to the decrease in the
amount of qualified accounts receivable sold under the terms of an agreement
with a U. S. bank. Increases in net contracts in progress and advance billings
were primarily due to the timing of billings in contracts performed at
McDermott International's Cambridge, Ontario facility and in the Far East, and
on the Foinaven Development program.
Pursuant to an agreement with a majority of its principal insurers, McDermott
International negotiates and settles products liability asbestos claims from
non-employees and bills these amounts to the appropriate insurers. As a
result of collection delays inherent in this process, reimbursement is usually
delayed for three months or more. The number of claims had declined
moderately since fiscal year 1990, but have increased during the second half of
fiscal year 1995 and the first quarter of fiscal year 1996. Management
believes, based on information currently available, that the recent increase
represents an acceleration in the timing of the receipt of these claims, but
does not represent an increase in its total estimated liability. The average
amount of these claims (historical average of approximately $5,000 per claim
over the last three years) has continued to rise. Claims paid during the
quarter ended June 30, 1995 were $36,604,000, of which $32,624,000 has been
recovered or is due from insurers. At June 30, 1995, Accounts receivable -
19
20
other includes receivables of $40,449,000 that are due from insurers for
reimbursement of settled claims. Estimated liabilities for pending and future
non-employee products liability asbestos claims are derived from McDermott
International's claims history and constitute management's best estimate of
such future costs. Estimated insurance recoveries are based upon analysis of
insurers providing coverage of the estimated liabilities. Inherent in the
estimate of such liabilities and recoveries are expected trends in claim
severity and frequency and other factors, including recoverability from
insurers, which may vary significantly as claims are filed and settled.
Accordingly, the ultimate loss may differ materially from amounts provided in
the consolidated financial statements. Settlement of the liability is expected
to occur over approximately the next 25 years. The collection delays, and the
amount of claims paid for which insurance recovery is not probable, have not
had a material adverse effect on McDermott International's liquidity, and
management believes, based on information currently available, that they will
not have a material adverse effect on liquidity in the future.
McDermott International's expenditures for property, plant and equipment
increased $9,695,000 to $25,278,000 for the three months ended June 30, 1995
compared with the same period last year. These expenditures included
$9,428,000 for installation of a new pipe reel system on a marine barge.
At June 30 and March 31, 1995, The Babcock & Wilcox Company had sold, with
limited recourse, an undivided interest in a designated pool of qualified
accounts receivable of approximately $132,000,000 and $175,000,000,
respectively, under the terms of an agreement with a U.S. bank. During July
1995, the B&W Company remitted collections on receivables of approximately
$43,000,000 which were owed to the bank on June 30, 1995. The maximum sales
limit available under the agreement, which expires on December 31, 1997, was
also reduced during July 1995 to $175,000,000.
At June 30 and March 31, 1995, International and its subsidiaries, had
available to them various uncommitted short-term lines of credit from banks
totaling $395,316,000 and $373,867,000, respectively. Borrowings against these
lines of credit at June 30 and March 31, 1995 were $145,119,000 and
$63,025,000, respectively. In addition, The
20
21
Babcock & Wilcox Company had available to it a $128,000,000 unsecured and
committed revolving line of credit facility. It is a condition to borrowing
under this revolving credit facility that the borrower's consolidated net
tangible assets exceed a certain level. There were no borrowings outstanding
against this facility at June 30 and March 31, 1995. Delta Catalytic
Corporation had available from a certain Canadian bank an unsecured and
committed revolving credit facility of $14,600,000 which expires on May 31,
1997. At June 30 and March 31, 1995 borrowings outstanding against this
facility were $10,950,000 and $7,420,000, respectively. JRM had available to
it a $150,000,000 unsecured and committed revolving credit facility of which
$80,000,000 was outstanding at June 30, 1995. JRM is restricted, as a result
of the consolidated tangible net worth covenant in this agreement, in its
ability to transfer funds to International and its subsidiaries through cash
dividends or through unsecured loans or investments. As approximately
$50,000,000 of its net assets were not subject to this restriction, it is not
expected to impact JRM's ability to make preferred dividend payments.
McDermott International maintains an investment portfolio of government
obligations and other investments which is classified as available for sale
under Statement of Financial Accounting Standards No. 115. The fair value of
short- term investments and the long-term portfolio at June 30, 1995 was
$470,210,000 (amortized cost $471,852,000). At June 30, 1995, approximately
$148,135,000 fair value of these obligations were pledged to secure a letter of
credit in connection with a long-term loan and certain reinsurance agreements.
In addition, McDermott International had obligations of $75,783,000 under
short-term repurchase agreements which were secured by government obligations
with a fair value of $76,011,000 at June 30, 1995.
The Delaware Company is restricted, as a result of covenants in certain credit
agreements, in its ability to transfer funds to International and its
subsidiaries through cash dividends or through unsecured loans or investments.
At June 30, 1995, substantially all of the net assets of the Delaware Company
were subject to such restrictions. It is not expected that these restrictions
will have any significant effect on International's liquidity.
Working capital increased $219,607,000 from a deficit of $40,790,000 at March
31, 1995 to $178,817,000 at June 30, 1995. During the remainder of fiscal year
1996, McDermott International expects to obtain funds to meet capital
expenditure, working
21
22
capital and debt maturity requirements from operating activities, its
short-term investment portfolio, and additional borrowings from existing lines
of credit. Leasing agreements for equipment, which are short-term in nature,
are not expected to impact McDermott International's liquidity or capital
resources.
McDermott International has provided a valuation allowance for deferred tax
assets which cannot be realized through carrybacks and future reversals of
existing taxable temporary differences. Management believes that remaining
deferred tax assets in all other tax jurisdictions are realizable through
carrybacks and future reversals of existing taxable temporary differences, and,
if necessary, the implementation of tax planning strategies involving sales and
sale/leasebacks of appreciated assets. A major uncertainty that affects the
ultimate realization of deferred tax assets is the possibility of declines in
value of appreciated assets involved in identified tax planning strategies.
This factor has been considered in determining the valuation allowance.
Management will continue to assess the adequacy of the valuation allowance on a
quarterly basis.
22
23
PART II
McDERMOTT INTERNATIONAL, INC.
OTHER INFORMATION
No information is applicable to Part II for the current quarter, except as
noted below:
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11 - Calculation of Earnings (Loss) Per Common and
Common Equivalent Share - Page 25
(b) Reports on Form 8-K
Signatures
23
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
McDERMOTT INTERNATIONAL, INC.
(REGISTRANT)
Date: 8/14/95 By: s/ Daniel R. Gaubert
-------- (SIGNATURE)
Daniel R. Gaubert
Vice President, Finance
and Controller
24
25
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
11 Computation of Income per Share
27 Financial Data Schedule
25
EX-11
2
COMPUTATION OF EARNINGS
1
EXHIBIT 11
MCDERMOTT INTERNATIONAL, INC.
CALCULATION OF EARNINGS (LOSS)
PER COMMON AND COMMON EQUIVALENT SHARE
(In thousands, except shares and per share amounts)
PRIMARY AND FULLY DILUTED
THREE MONTHS ENDED
6/30/95 6/30/94
------- -------
Income before cumulative effect of
accounting change $ 8,832 $ 3,118
Less dividend requirements of preferred stock, Series C (2,066) (2,066)
----------------------------------------------------------------------------------------------------------------------
Income before cumulative effect applicable to
common stock 6,766 1,052
Cumulative effect of accounting change - (1,765)
----------------------------------------------------------------------------------------------------------------------
Net income (loss) for primary computation $ 6,766 $ (713)
======================================================================================================================
Weighted average number of common
shares outstanding during the period 54,017,783 53,478,556
Common stock equivalents of stock options and stock
appreciation rights based on "treasury stock" method 395,323 145,130
----------------------------------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding during the period 54,413,106 53,623,686
======================================================================================================================
Earnings (Loss) per common and
common equivalent share: (1)
Income before cumulative effect of
accounting change $ 0.12 $ 0.02
Accounting change - (0.03)
----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.12 $ (0.01)
======================================================================================================================
(1) Earnings (Loss) per common and common equivalent share assuming full
dilution are the same for the periods presented.
EX-27
3
FINANCIAL DATA SCHEDULE
5
1,000
3-MOS
MAR-31-1995
JUN-30-1995
106,996
145,314
562,974
48,588
401,370
1,607,326
2,256,761
1,355,533
4,624,230
1,428,509
567,717
54,170
0
2,875
662,041
4,624,230
816,474
816,474
811,611
811,611
0
0
21,538
21,709
12,877
8,832
0
0
0
8,832
0.12
0.12